SEBI Proposes Amendments to Ease Investment Norms for Credit-Focused AIFs

SEBI has released a consultation paper proposing revisions to Regulation 17(a) of the SEBI (Alternative Investment Funds) Regulations, 2012. The move aims to address concerns raised by credit-focused Category II AIFs, whose investment opportunities in unlisted debt securities have been significantly impacted by recent changes in the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Current Issues:

Owing to the introduction of Regulation 62A of SEBI (LODR) Regulations, 2015, all listed entities (entities with equity shares, non-convertible debt, preference shares, perpetual instruments, Indian depository receipts, securitized debt, mutual fund units, or other SEBI approved securities listed on any of the recognized stock exchanges) were required to:

• List all subsequent NCD issuances from January 1, 2024 onwards.
• List any previously unlisted NCDs issued post-January 1, 2024, within 3 months of any new listed issuance.

This significantly restricted the availability of unlisted debt securities, making it difficult for Category II AIFs to comply with their >50% unlisted securities investment mandate.

Proposed Amendment by SEBI:

To provide greater flexibility while ensuring that AIFs continue to assume meaningful credit risk, SEBI proposes the following revision to the investment norms for Category II AIFs: “Category II Alternative Investment Fund to invest more than 50% of their total investible funds in unlisted securities, and/or listed debt securities having credit rating ‘A’ or below, directly or through investment in units of other AIFs.”

This change would allow Category II AIFs to meet the >50% “primarily” threshold by investing in a combination of unlisted securities and lower-rated listed debt, ensuring continued capital flow to businesses that lack access to traditional funding sources.

SEBI is inviting public comments on this proposal until February 28, 2025. Share your views here: https://lnkd.in/dukSc3Mi

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Dhairya Chaniyara

Senior Associate | Financial Advisory | [email protected]

Focuses on direct tax and regulatory services with a specialization in GIFT IFSC. Brings experience from various industries, including manufacturing, FMCG, IT-ITES, and healthcare, to deliver impactful tax solutions.